IRS audit of a foreign-income return — how much of this can I do myself?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: preparation means reconciling the foreign accounts and asset reports to the return, evidencing foreign tax paid in a form the IRS accepts, and confirming the treaty positions were disclosed where required.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
Why is the IRS asking about my foreign accounts and not the tax?
Because that is where the exposure usually is. An examination of a return carrying foreign income turns very quickly into an examination of the information returns filed alongside it — the reports of foreign accounts and foreign assets. Those reports are about disclosure rather than liability, and the penalties attached to them are routinely larger than the tax at stake on the income itself. So an examiner who starts with the income will nearly always move to whether the accompanying reporting was complete and whether it agrees with the return. Preparing for the tax question alone is preparing for the smaller half of the problem.
How do I prove the foreign tax I already paid on that income?
In a form the examiner can accept, which is narrower than what most filers hold. A payslip or a bank debit shows money leaving; it does not by itself show tax assessed and paid to a foreign authority on the income in question. What works is the foreign authority's own record — the assessment or equivalent statement — supported by evidence of payment and, where the original is not in English, a translation. The other half is arithmetic: the foreign income the credit relates to has to reconcile to the amount on the return, in the same currency, for the same period.
What happens if my foreign asset report does not match my return?
It becomes the examination. A difference between the accounts and assets reported and the income shown on the return is the most productive question an examiner can ask, because either the reporting is wrong or income is missing. Most such differences turn out to be explainable — an account held jointly, a period that runs on a different year end, a balance that generated no income, a currency conversion done on a different basis. Explainable is not the same as explained. Preparation means reconciling the two before the examiner does, and being able to show which difference arises from what.
Do I need to disclose a treaty position on my US return?
Where the position is one that disclosure is required for, yes, and the examination is where an omission surfaces. A treaty position that was taken but never disclosed puts you in the position of defending both the substance and the silence, which is a harder argument than the substance alone would have been. Part of preparing for an examination of a foreign-income return is confirming what positions the return actually took, which is not always what the filer believes it took, and confirming that each was disclosed where the rules required it.
Are the information return penalties really worse than the tax owed?
Frequently, yes, and that is the point most filers do not see coming. Tax on foreign income is often modest, particularly where foreign tax has been paid on the same income and relief is available. The reporting obligations that sit alongside it do not work that way: they attach to the failure to report, not to the amount of tax that was avoided, so an account that generated very little income can carry an exposure out of all proportion to it. That asymmetry is why the reporting side of an examination deserves the greater share of the preparation.
What should I gather before an IRS audit of foreign income?
Work backwards from the return. For each item of foreign income, hold the underlying statements for the full period, the foreign authority's record of any tax assessed and paid on it, and the conversion basis used. For each foreign account and asset, hold the year-end position and the ownership documentation, including anything held jointly or through another person. Then reconcile the two sets against what the return and the accompanying reports actually said. The gaps that reconciliation reveals are the questions the examination will ask, and it is better to find them first.
Do Canada and the United States share tax information?
Yes, through more than one channel. The treaty has an exchange-of-information article that supports both routine and on-request exchange. Separately, an intergovernmental agreement has Canadian financial institutions identify US-reportable accounts and report them to the CRA, which passes them to the IRS, with the reverse flow for Canadian residents. Most other country pairs use the Common Reporting Standard for the same purpose. See FATCA reporting.
What happens if I have not filed for several years?
Missed years are handled as one package, not one at a time, because the route chosen for the first year determines the relief available for the rest. Each country has a disclosure or relief programme with its own conditions, and entering the right one — before the authority contacts you — is usually what keeps penalties down. Filing quietly outside a programme forfeits that protection. See catching up on missed returns.
